Uday Kotak, vice-chairman and managing director of Kotak Mahindra Bank, believes that solutions to India's problems are not in running after more US dollars, but fixing the broken Indian manufacturing. In an interview with ET, Kotak says that the society that has lost its bearings has to get it back - the middle class values that made the India story an attractive one globally. It will be a long and hard way to recovery. Edited excerpts:

Is the India story fading?

As we were all growing up there used to be a very big mantra in India which was called 'export or perish.' There was a long period when we used to focus on import substitution. In the past eight years, these two phrases 'export or perish' and 'import substitution' are no longer a part of the Indian economic vocabulary. I was looking at all the equipment and facilities, furniture for our new office. I was shocked that so much of it is imported. Tables and chairs are coming from Malaysia and China. You ask yourself what is happening to our manufacturing. If we are going to start importing, then we have a big challenge on our hands.

Is the adverse trade balance the problem?

You have to look at the March 2013 numbers and the number that strikes me the most - $500 billion imports and $300 billion exports. We have a $90-odd billion gap in terms of current account. It is a problem of commerce which is becoming a problem of finance. We have to get competitive. Can we afford to import Chinese Ganeshas?

Are import curbs a solution?

Today it has become a problem of finance. How are we trying to solve this - by getting more money to fix this. What about reducing the trade gap? If one is a heart patient, he needs a long walk. It's a long walk we must do.

Is the young population an obstacle, or a boon?

We have a billion mobile demand and 800 million users. Many are using more than one handset. Why are we not manufacturing it in the country? What is it that a Korea has that we don't? That's where the whole psychology and system in the last 10 years has moved away from competitiveness and we have not addressed the 500/300 problem.

When there is a finance problem staring at us, how do we attempt to fix broader issues?

We need to glorify people who solve the 500/300 problem. A weaker currency is a national tariff. After we get a weaker currency, we have to take advantage of that. Or else, we will waste it once more in inflation and in the inability to raise competitiveness.

If properly used and not frittered away. If a software professional's salary is in rupees but earnings are in dollars, then you are competitive. But if it leads to a disproportionate increase in inflation, then we would have wasted the opportunity.

Isn't inflation already a burning issue?

If I look at my branch one thing that shocks me is the rate at which ground floor real estate rentals have gone up and it is completely lazy money that a landlord gets. It reduces my competitiveness. We need a policy that is brutal about commerce. We have to think about this as not a problem of finance but a problem of commerce. Unfortunately, all our minds are focused on finance. But the issue is that a problem of commerce is being handled as a problem of finance.

Are financing problems addressed with higher debt limits for FIIs?

There is too much of pressure about cost of funds. In a country where your consumer price inflation is 8-9%, savers will not save money at less than 8%. Which depositor today will accept less than 8%? Then if you try and reduce interest rates your financial savings move to gold and real estate. We have to ensure that financial savings continue to be attractive. The move on FII debt was because borrowers are complaining. Most of the borrowers borrowed in dollars and did not hedge. So they thought they were borrowing at 2% while they were borrowing at 20%. The first principle of business is to borrow in the currency of your business, otherwise you are a forex speculator.

So there's a financial sector challenge?

There are issues when you have such a high government ownership. If the asset side of the balance sheet has pressure, you need capital. The correct liberalisation of the financial sector would have been broadening the public ownership in public sector banks. Which means you would have all public sector banks as widely-held private sector banks. But we can't take that decision for political reasons.